DBRS Confirms Lake Superior Power Limited Partnership at BBB (high)

DBRS has today confirmed the rating on the Senior Secured Bonds (the Bonds) of Lake Superior Power Limited Partnership (LSP or the Project) at BBB (high) with a Stable trend.

The confirmation is based on the strength of LSP’s long-term contractual arrangements with investment-grade counterparties and the continuous support by Brookfield Renewable Power Inc. (BRP, rated BBB (high) with a Stable trend) for the resale of the off-peak excess gas during the terms of the current fuel supply agreements (FSAs) and thereafter the supply of the fuel requirements. Generation capacity and energy production are sold under a power purchase agreement (PPA) with the Ontario Electricity Financial Corporation (OEFC, rated AA with a Stable trend) through April 2014. The PPA has an annually adjusted price consisting of three main components for energy, on-peak capacity and fuel-adjustment, respectively. Gas requirements had been provided 50-50 under two FSAs with Talisman Energy Inc. (Talisman, rated BBB (high) with a Stable trend) and Petro-Canada (rated A (low), Under Review with Negative Implications), but both contracts will be termed out by the end of 2008. Starting from 2009, Brookfield Energy Marketing LP (BEMLP, unrated), a wholly-owned subsidiary of BRP, will provide gas supply under forward contracts guaranteed by BRP. Gas transportation and distribution are provided, with regulated tariffs, by TransCanada Pipelines Limited (rated “A”) and Union Gas Limited (rated “A”), respectively.

Cash flow under contracts is relatively stable and predictable and can provide for full amortization of the Bonds by maturity in September 2009. Operating performance has met the PPA requirements and allowed LSP to receive the full amount of the contract payments.

Capital expenditures have been lower than expected in recent years. On a normalized basis, LSP’s annual capital expenditures are expected to be approximately $2.1 million until the maturity of the Bonds. The next scheduled major capital work is after the maturity of the Bonds.

LSP continued to have a marginal amount of off-peak energy production, mostly during the necessary warm-up and ramp-up hours immediately preceding the on-peak period. Excess off-peak gas supply has been resold, as the off-peak spark spread is generally not wide enough to justify profitable energy production. BEMLP, guaranteed by BRP, has been the agent for the resale of the off-peak excess gas. No gas resale is expected after the expiry of the current FSAs.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Project Finance which can be found on our web site under Methodologies.

This is a Corporate rating.